With mortgage rates close to record lows, 95% of refinancing homeowners are going with fixed-rate loans, according to Freddie Mac. More borrowers are also opting for shorter mortgages, with 40% of those who paid off a 30-year loan switching to a 15- or 20-year mortgage, the highest percentage since 2003.
Based on Freddie Mac data, rates for 30-year fixed mortgages averaged 4.29% during the third quarter of this year, and 15-year loans averaged 3.47%. “Compared to a 30-year fixed-rate mortgage, the interest rate on 15-year fixed was about 0.8 percentage points lower during the third quarter. For borrowers motivated to refinance by low fixed-rates, they could obtain even lower rates by shortening their term,” said Frank Nothaft, Freddie Mac vice president and chief economist.
Freddie Mac cited the government’s Home Affordable Refinance Program, which was revised in October, as one reason for the increased number of homeowners refinancing into shorter, lower-interest mortgages. “More than 900,000 borrowers have already refinanced via the Program through September. The enhancements provide incentives for eligible borrowers to shorten their loan terms, from 30 years to 20- or 15-years,” Nothaft said.